Paycheck Protection Program (PPP)
​This page is geared towards small business & self-employed only.  

Here is a great resource to one of our favorite clients/consulting firms (Wanderwell) that has been updating info as well: Click Here

FOR MOST CURRENT SPECIFIC GUIDANCE FROM SBA:  Click Here
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UPDATED 6/22/2020 - On Wednesday 6/17, the SBA released a new EZ version of the forgiveness application. To qualify for the EZ App, the business owner must meet one of three tests: 

• You are self-employed and have no employees; or
• You had employees, but did not reduce their salaries or wages during the covered period by more than 25 percent AND did not reduce the number of hours worked by employees (essentially meeting what’s come to be known as the FTE employee rule); or
• You had employees, but did not reduce their salaries or wages during the covered period by more than 25 percent, AND due to complying with essentially shelter-in-place laws during the covered period, you were unable to operate during the covered period at the same level of business that existed before February 15, 2020.

You can download the Forgiveness Apps at the SBA Website, but we recommend going through your bank to use their bank-specific forms.

Since the SBA expanded the 8-week period to 24-weeks, we have gotten questions on owner compensation. It has been clarified that the maximum forgiveness for an owner has increased from $15,385 (under 8-week method) to $20,833 (under 24-week method). 

A few other notable questions were answered regarding S-Corp owners and Self-employed:

• Health insurance contributions made on behalf of a self-employed individual, general partner or owner-employee of an S-corporation are not allowed as part of payroll costs.

• • --Observation – The limitation on S-Corp owner employees has been added.
• • --Unanswered Question – There is still no definition of owner in these instructions. 

• Employer retirement contributions made on behalf of a self-employed individual or general partner are notincludable in payroll costs. Contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount.

• • --Unanswered Question – It is not entirely clear what the “2019 contribution amount” means. Is that the amount paid in 2019, which could have been for 2018 or 2019 contributions, or the amount on the tax return that could have been paid through Sept 2020.
• • --Observation – Although not specifically mentioned, it would appear that owner-employees of corporations are included in this limitation. Otherwise what would owner-employees mean, being that partners, LLC members and self-employed individuals cannot be employees of their respective entities.
• • --Observation – The cap on owner-employees of 2.5 months’ worth of the 2019 contribution amount is only stated in the EZ form and not in the regular application. Stay tuned for more guidance

UPDATED 6/4/2020 -  Paycheck Protection Program Flexibility Act (PPPFA)  Here is a brief summary of what was just passed by the Senate on Wednesday night and is expected to be signed by President Trump:

• Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.

• The new law allows you to use at least 60% (down from 75%) of the loan proceeds on payroll related costs. Up to 40% may be used for the other qualified costs you should know by now (i.e. rent, utilities, mortgage interest, etc.). Unfortunately, we now read that this threshold is a cliff, meaning that borrowers must spend at least 60% on payroll or NONE of the loan will be forgiven. 

• Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.

• The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.

• New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

• The period to apply for a PPP loan is extended to December 31, 2020 from June 30, 2020.

• The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.


UPDATED 5/17/2020  - The SBA just released the forgiveness application:    3245-0407_sba_form_3508_ppp_forgiveness_application.pdf

• Here is a Forbes article that explains some of the new clarifications: www.forbes.com/sites/alangassman/2020/05/16/sba-gives-ppp-borrowers-good-newsforgiveness-application-and-instructions-are-borrower-friendly/#19a5c4a93210
• Some highlights:
  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles;
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan; Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness;
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30; and
  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

UPDATED 5/13/2020  - The SBA just issued new guidance:
 
FAQ#46 - SBA Provides Safe Harbor for PPP Loans Less Than $2,000,000:

• The clears up some uncertainty we raised below on 4/26/2020 on the “Necessary” Certification (SBA FAQ #31).
• The Treasury added Question 46 to its FAQ on May 13, 2020, providing a safe harbor that any borrower, together with its affiliates, that received less than $2M in PPP loans, will be deemed to have made the required certification concerning the necessity of the loan request in good faith.  This means that if the loan is less than $2M, the good faith certification regarding the necessity of the loan will not be challenged by the SBA. 
• Accordingly, PPP loan borrowers with loan amounts of less than $2 million will not have to undergo audits based on the certification of the necessity of the loan. The SBA stated that it will focus its “finite audit resources” on loans larger than $2 million, where there may be more uncertainty on whether borrowers fulfilled the loan necessity certification.
• Despite FAQ #46, I am still recommending that you properly document your position as to the rationale of how your business is economically impacted and why you need this loan. You should not take the loan if you do not need it. There are many businesses that really need this money. 

FAQ #40 - Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

• No.
• SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation

UPDATED 5/2/2020 - the IRS released guidance on deductibility of PPP expenses…. In a nutshell, for Federal Tax purposes the IRS is stating that no deduction will be allowed for expenses (payroll, rent, utilities, etc) to the extent that a taxpayer pays those costs using loan proceeds from PPP.  The Federal Tax treatment may not be the same for State Tax treatment – and we know that State Govt are looking for every source of revenue they can get.   Some members of Congress have been discussing options to reinstate the deductibility of these expenses.  So as of right now, the position confirmed on 5/1/20 by the IRS stands (until congress speaks again).  www.irs.gov/pub/irs-drop/n-20-32.pdf

*** THE $2,000,000 SAFE HARBOR Released on 5/13/2020 (FAQ #46) provides some relief to this older guidance below***

UPDATED 4/26/2020 - Based on guidance released 4/23/2020, we are recommending your consult with your LEGAL COUNSEL as to your eligibility for this program. WE ARE NOT ATTORNEYS AND CANNOT PROVIDE LEGAL ADVICE.  

Specifically, we want to bring to your attention regulatory guidance issued on April 23, 2020 making clear that a PPP loan applicant must review carefully the applicant’s required certification that “current economic conditions make this loan request necessary to support the ongoing operations of the Applicant.” The recent guidance directs each applicant to take into account its current business activity and its ability to access other sources of liquidity sufficient to support its ongoing operations in a manner that is not significantly detrimental to the business.

 The PPP statutory and regulatory provisions applicable to all applicants can be found here. Knowingly making a false statement to obtain a guaranteed loan from the SBA is punishable under the law, including material fines as well as possible criminal charges and imprisonment.

In view of this guidance, some borrowers have repaid PPP loans or are planning to do so before the May 14th "Safe Harbor" Deadline:

Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request:
The Borrower Application Form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 (UPDATED TO MAY 14th) will be deemed by SBA to have made the required certification in good faith. The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.


While this recent guidance is targeting large public companies (e.g  Shake Shack), small business should also be wary.

• We recommending that you speak with your business/corporate attorney.
• Contemporaneously document the rational of how your business is economically impacted.
• If you decide to take the loan, we recommend depositing the funds into a separate bank account. 

Third-Party Links Regarding Risks to Loan Program:
https://www.forbes.com/sites/brucebrumberg/2020/04/10/how-to-avoid-going-to-prison-for-your-paycheck-protection-program-loan-advice-from-former-federal-prosecutors/#4d1920717916
 
https://www.natlawreview.com/article/paycheck-protection-program-action-questions-about-loan-application-risks

https://www.hklaw.com/en/insights/publications/2020/04/guidance-for-vc-backed-companies-seeking-loans
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​Paycheck Protection Program (PPP) - Audit Trail Guidelines

• Be mindful of the calendar AND your loan date.  YOUR TIMETABLE BEGINS AT THE DATE YOUR LOAN WAS FUNDED INTO YOUR ACCOUNT.
• From the date of your particular funding, you have 8 weeks to spend the money on qualified purposes if you want maximum forgiveness. 
• Remember, qualified purposes are ONLY:    75% of the loan for payroll (and associated health and retirement costs) and 25% for rent, utilities and mortgage interest.
• Keep your records clean and ready to go – in PDF form.
  • Separated Account Version: Once you receive the PPP funds, transfer it to separate operating account, documenting the transfer.  This will make sure these particular funds, which you are asking to be forgiven, are not co-mingled with other funds and documented cleanly and clearly on qualified expenses only.   
  • Same Account and Tagged Version: If separating into a different account is not viable for you, considering tagging the deposit and the qualified payments with the tag PPP Loan and having a back-up spreadsheet recording payments and dates for these specific qualified uses.
  • Backup Records Filed/Folder:   Keep invoices and paid statements for payroll, health insurance payments, retirement payments, rental payments, mortgage payments and utility payments.  Have copies of your mortgage statements, a copy of your lease and your rental invoices, and your canceled checks or ACH statements  - ALL ready in PDF format for sending electronically to your banker.

​Paycheck Protection Program (PPP) - FAQs we Received
 

• SBA has told bankers that they will rely on YOUR certifications and calculations. Therefore, YOU as the applicant are on the hook, NOT the bank. Use the link below to read all of the SBA guidelines and FAQs
• https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf
• If you are Self-Employed and do NOT have 2019 taxes prepared yet, they will accept a 2018 Schedule C, but will also want to see a 2019 P&L/Bank Records
• In our experience, some banks have NOT used the calculations consistent with what we have read in the SBA guidelines. For clarification as we read the SBA standards (despite what your banker is telling you):
  • Schedule C & Partnership PPP should be based on Self-Employed Earnings (Not Distributions/Owners Draws)
  • S-Corporation should be based on Payroll (e.g. owner/officer "reasonable compensation" via payroll) - NOT S-Corp Distributions
  • If you pay independent contractors (1099s), do NOT include them in your PPP. They file for PPP on their own.
• ​Can I switch my independent contractors to employees in order to pay them with PPP money?
  
  • There does not seem to be a restriction on transitioning independent contractors to employees. However, you will want to consider the long-term implication of this choice. First, employees are more expensive and they have more obligations for your company. Second, if you intend to bring them on as employees now only to transition them back to independent contractors after the eight-week period, you'll need to consider your states guidelines around classification of each worker. It's very likely that your state's department of labor would prevail on a misclassification claim.
    

​Paycheck Protection Program (PPP) - An Overview
 
In additional to the EIDL grants and increased SBA 7(a) loans, the CARES Act establishes a net loan program for small businesses called the Paycheck Protection Program (PPP). PPP loans are designed to help small businesses avoid closure or layoffs, and can be used to cover payroll, utilities, insurance premiums, and rent and mortgage interest payments on a facility. This program concludes on June 30, 2020, and is tailored for businesses that typically would not qualify for a loan at an average local or national bank. The loans require no collateral, credit test or personal guarantees from a business, only proof that the business was open and operational on February 15, 2020. In order to attract lenders, the government is offering a 100% guarantee on loans through the end of 2020.
 
Program highlights

• There is no cost to apply.
• The funding is meant to help retain workers, maintain payroll, and cover rent/mortgage/utility expenses.
• The loan covers expenses dating back to February 15, to June 30, 2020
• The loan can be forgiven and essentially turn into a non-taxable grant.

 
Do I qualify for the program?
Likely yes! This program is more extensive than the SBA disaster loan. Small businesses, sole proprietorships, independent contractors, and self-employed individuals can all qualify.

• Sole proprietorships will need to submit schedules from their tax return filed (or to be filed) showing income and expenses from the sole proprietorship.
• Independent contractors will need to submit Form 1099-MISC.
• Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service.

 
How does this differ from the SBA disaster loan?

• No personal or business collateral is required. The SBA disaster loan may require collateral for loan amounts over $25,000.
• It’s ok if you also have access to credit elsewhere. To receive a SBA disaster loan you generally need to have no other source of credit.
• The funding covers a more restrictive set of purposes (details below). The SBA disaster loan can cover most operating expenses.
• Your loan can be forgiven if you follow the terms. The SBA disaster loan requires repayment.

 
How is this similar to the SBA disaster loan?

• You need to demonstrate your business was economically affected by COVID-19.
• It’s free to apply.
• Your loan is long-term (maximum 10 years) and low-interest (maximum 4%).
• You have an extended deferment period (6-12 months, depending on your lender) before you begin repayment.
• There is no prepayment penalty.

 
What can I use the funds for?

• You must acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. Funds you use for other purposes will not be eligible for forgiveness.

 
The funds can be used for:

• Payroll and commission payments
• Group health care benefits/insurance premiums;
• Mortgage, rent, and lease payments
• Utilities
• Interest on any other debt obligations that were incurred before the covered period.

 
How much funding can I receive?

• The SBA will ask you to provide documentation on your business’s payroll, mortgage, rent, and utility payments over the previous 12-month period. They will calculate the monthly average cost of those expenses. The maximum amount they can offer is 2.5 times that monthly average cost, but no more than $10 million.
• If you are a seasonal employer, the monthly average cost will be calculated differently. The SBA will use a 12-week period beginning either February 15, 2019 or March 1, 2019, and ending June 30, 2019.
• If your business did not exist before June 30, 2019, the SBA will look at your costs in January and February 2020.
• Note that if you receive a loan under the Paycheck Protection Program, you may no longer be eligible for an EIDL SBA loan for the same purpose of covering payroll.

Can you do PPP + EIDL?
A business that receives an EIDL between Jan. 31 and June 30, 2020, as a result of a COVID-19 disaster declaration is eligible to apply for a Paycheck Protection Program loan or the business may refinance their EIDL into a Paycheck Protection Program loan, but the funds may not be duplicative. A borrower cannot receive a PPP loan in addition to an Economic Injury Disaster Loan (EIDL) through the SBA for the same purposes. However, a borrower who has an EIDL loan unrelated to COVID-19 may apply for a PPP loan (with an option to refinance the EIDL loan into the PPP loan). The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program
 

​Paycheck Protection Program (PPP) - Forgiveness
 
How can I get my loan forgiven?
 
In the 8 weeks following your loan signing date, all expenses related to the following can be forgiven:

• Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • ​If you’re self-employed, these costs include the net profit amount from your business, as reported on your 2019 tax return
• Mortgage interest *—as long as the mortgage was signed before February 15, 2020
• Rent *—as long as the lease agreement was in effect before February 15, 2020
• Utilities *—as long as service began before February 15, 2020
• * However, not more than 25% of the forgivable loan amount (the amount of the loan used to pay forgivable expenses) may be attributable to nonpayroll costs. In other words, at least 75% of the loan must be used for payroll costs. 

 

What are suggestions for maximum forgiveness?
​

• If you feel that 75% of the loan won’t be used for payroll, consider modifying your payroll periods (from semimonthly to weekly, for example) or paying out bonuses toward the end of the eight-week period.
• Gather and analyze mortgage documents, leases, and utility bills to make sure obligations arose prior to 2/15/20. Each lender will likely want you to provide the documentation in a slightly different format, but it will be much easier to adapt if you’ve already collected your data. Make sure you have lease agreements in place if you lease from a related party.
• If expenses are paid with a business credit card, make sure that portion of the credit card bill is paid with PPP funds before the end of the eight-week period.

How many employees do I need to keep to achieve maximum forgiveness?

The purpose of the Paycheck Protection Program is to, well, protect paychecks. The amount that can be forgiven will be reduced…
     A)   In proportion to any reduction in the number of employees retained.
     B)   If any wages were reduced by more than 25%.

A)   For the eight week period, if your average number of full-time equivalent employees per month is less than the average during a base period, your forgivable loan amount will be reduced. The base period is either:
             (1) 2/15/19 through 6/30/19, or
             (2) 1/1/20 through 2/29/20. 
You can use the base period that produces the best result. 
 
B) Also, your forgivable loan amount will be reduced if salary levels are cut by more than 25%. For each employee who earns less than $100,000, you compare salary paid during the next eight weeks with that employee’s salary during the most recent full quarter. If the reduction is greater than 25%, a corresponding reduction must be made to the loan forgiveness amount. Note that this test requires the business to look at every employee individually.
 
If you have already laid off or furloughed workers, try to restore employee headcount and salary levels by 6/30/20. If you do so, any headcount and salary reductions that occurred between 2/15/20 and 4/26/20 will be ignored. Keep in mind you don’t have to rehire the same employees. Also, rehired workers don’t actually have to perform customary work duties. Before taking action, you should consult with your labor and employment attorney to work out the terms for rehiring workers.


What documentation is required?

When submitting your application for loan forgiveness, you must provide the following documentation (no exceptions):

• documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described in subsection (d), including:
  • payroll tax filings reported to the IRS
  • State income, payroll, and unemployment insurance filings
• documentation to prove your mortgage, lease, or utility payments
  • cancelled checks
  • payment receipts
  • account statements
• a certification from a representative of the eligible recipient authorized to make such certifications that:
  • the documentation presented is true and correct; and
  • the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and
• any other documentation the Administrator determines necessary.

 
The lender must make a decision within 60 days of your forgiveness application submission.